You worked hard all your life and amassed a significant fortune to pass on to your heirs. It would be tragic if one of your heirs, funded by an inheritance, led a dissolute life and headed to an early grave.
Even if situations don’t get that dire, not all heirs are equipped to be good fiscal managers. If your children are still young, now is the time to teach them good money management skills. While it’s never too late to learn, if you doubt an adult child or other heir’s ability to manage an inheritance, there are ways to offset this concern.
One option is a spendthrift trust. These asset protection trusts can be established during your lifetime as an inter vivos trust or upon your death in a testamentary trust. Let’s look at how these trusts work.
Spendthrift trusts contain protective clauses for the trust assets. Trustees can either have broad discretionary powers to disburse funds to heirs or follow your detailed provisions for the disbursement of trust income at specified intervals. Trusts can be designed for a beneficiary’s lifetime or for a set number of years.
You can arrange disbursements in amounts sufficient to maintain the lifestyle to which they’re accustomed, but prevent them from tapping the trust principal and making unwise choices with the funds.
In essence, you are protecting your heirs from their baser inclinations. This can raise an heir’s ire and can also foment tension between sibling heirs or others if all heirs are not subject to the same financial restrictions.
That’s one reason why it’s important to discuss your intentions with your heirs before the need arises. That gives them a chance to express any feelings they have about the matter and you to explain the reasoning behind your choices.
Your Colorado estate planning attorney can review your situation and offer estate planning recommendations that are tailored to your needs.